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2016 (9) TMI 401 - ITAT CHENNAI

2016 (9) TMI 401 - ITAT CHENNAI - TMI - Expenditures incurred on Crane hire charges, Dredger Transport expenses and Sub-contractor charges - whether are allowable u/s.28 ? - disallowance made u/s.40(a)(ia) - Held that:- CIT(A) had given a relief to the assessee on the reason that no payment is outstanding at the end of the cost of financial year and it is not to be shown as payable in the financial statement of the assessee. Hence, the provisions of the section 40(a)(ia) of the Act is not applic .....

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ion 40(a)(ia) of the Act cannot be applied in view of the judgment of the Special Bench of the Tribunal in the case of Merilyn Shipping and Transports v. Addl. CIT [2012 (4) TMI 290 - ITAT VISAKHAPATNAM ]. - Disallowance made u/s.40A(3) - Held that:- We find that though the payments were made in cash in excess of ₹ 20,000/- on account of business expenditure, as the assessee made the payments at the work place for the purpose of purchase of materials and labourers. Further, the drudgi .....

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espect of above expenditure. In the present case, the assessee and its team went to a far away place for the purpose of TV serial shooting. The assessee had made cash payments to various parties, technicians, artists etc. for the period of 2 to 6 days under business compulsions. We find that the above payment was made under business compulsions and Therefore, by considering all the facts and circumstances of the case and also taking into consideration of the business expediency, we are of the op .....

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ection is dismissed. - Disallowance of expenditure at 10% in respect of self-made vouchers - Held that:- The total expenditure was claimed at ₹ 2,49,55,733/-. These payments were self-made vouchers. There is every chance of bifurcating expenditure in selfmade vouchers as it is not supported by third party evidence and self-made vouchers is not 100% full proof. Hence, certain adhoc disallowance is made. Being so, the CIT(A) is very reasonable in restricting the disallowance from 20% to .....

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see are directed against the order of the Commissioner of Income-tax (Appeals), Tiruchirapalli dated 30.01.2014 pertaining to assessment year 2010-11. 2.1 The Revenue has raised the following grounds. 1. The order of the learned CIT(A), is contrary to the law and facts of the case. 2. The Id. CIT(A) erred in holding that the expenditures incurred on Crane hire charges, Dredger Transport expenses and Subcontractor charges are allowable u/s.28 of the IT Act and deleting the disallowance of ₹ .....

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ed by the assessee. 4. The Id. CIT(A) erred in deleting the addition of ₹ 20,95,600/- and ₹ 21,40,000 made towards unexplained cash credits as appeared in the name of Sri l.Chandrasekar and Sri A.Parthiban without appreciating the fact that the assessee had not produced any evidence explaining source of funds for these cash credits. 2.2 In Cross Objection, the assessee has raising the following grounds. 1. For that the order of the Commissioner of income Tax (Appeals) is contrary to .....

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redits in the current account of partner to the extent of ₹ 15,80,000/- is not warranted in the facts and circumstances of the case. 3.1 There was a delay of 109 days in filing the cross objection by the assessee. The assessee filed a condonation petition stating that the assessee received a notice of hearing of Department appeal on 21.06.2014 and the said notice was handed over to Shri V.Samath Kumar, Manager of the assessee s firm so as to hand over Mr.V.Viswanathan,C.A on 15.07.2014. Ho .....

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see on 04.11.2014. After getting due signature, it was able to file the same on 07.11.2014. Mr.T.Banusekar,C.A prayed that the delay caused in filling of C.O was bona fide and there exists reasonable cause and prayed for condonation of delay. Considering, the reasons advanced by the ld.A.R and also affidavit filed by the assessee, in our opinion, there is a good and sufficient reasons to condone the delay of 109 days. Accordingly, the delay is condoned and the cross objection is admitted for adj .....

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Revenue s appeal is that the Id. CIT(A) erred in holding that the expenditures incurred on Crane hire charges, Dredger Transport expenses and Sub-contractor charges are allowable u/s.28 of the IT Act and deleting the disallowance of ₹ 49,69,800/- made u/s.40(a)(ia), overlooking the provisions of section 37 of the Act which covers these payments 5. The facts of the case are that the assessee is a firm, engaged in the buses of Dregding and Contract. The assessee firm filed its return of inc .....

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edger transport expenses 3,96,000 Payments made to various sub contactors 43,73,800 Total 49,69,800 Aggrieved by the order of ld. Assessing Officer, the assessee carried the appeal before the Ld.CIT(A). On appeal, the Ld.CIT(A), deleted the addition on the reason that these payments are already made before the end of the close of the Financial year. Nothing was outstanding at the end of the close of the financial year. Further, it was observed that all the payments were made u/s.28 of the Act, c .....

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s of the CIT(A). The Department challenging only another findings of the CIT(A) in regard to the expenditure on Crane hire charges, Dredger Transport expenses and Sub-contractor xpx allowable u/s.28 of the Act and CIT(A) deleted the disallowance of ₹ 49,69,800/- by overlooking the provisions of the section 37 of the Act which covers these payments. Hence, the ground of Revenue is inappropriate. In our opinion, provisions of the section 40(a)(ia) of the Act cannot be applied in view of the .....

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d Transports v. Addl. CIT [2012] 16 ITR (Trib) 1 (Visakhapatnam) [SB] and judgment of the Gujarat High Court in the case of CIT v. Vector Shipping Services (P.) Ltd. in I. T. A. Nos. 122 of 2013 dated July 9, 2013 [2013] 357 ITR 642 (All) held that section 40(a)(ia) is not applicable when there is no outstanding balance at the end of the close of the year relevant to the assessment year in respect of these payments. However, the assessee has not brought on record, the details of outstanding expe .....

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amount is not outstanding at the end of the close of the assessment year in respect of the expenses either as outstanding expenses or as sundry creditors, this amount cannot be disallowed. This ground is remitted back to the Assessing Officer for fresh consideration. Accordingly, this ground is dismissed. 7. The next ground is with regard to deleting the disallowance of ₹ 75,95,349/- made u/s.40A(3) of the Act. 7.1 The facts of the issue are that The AO made an addition of ₹ 75,95,34 .....

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he following reasons. Material for contract works: The appellant has paid a sum of ₹ 13,56,596/- by way of cash towards materials for contract work. These expenses were incurred at the work site for purchase of construction materials, spare parts, bunkering vessels for carrying water / fuel to the ship etc. It may be noted that in the previous year relevant to the assessment year the appellant had taken a sub-contract for construction of complex near the port at Karaikkal which complex was .....

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f some other contractor, for the emergency needs the material would be procured by paying cash. Further whenever the dredgers get into the sea, the appellant has to finish the work within the time limit. The dredgers have to work round the clock at times to meet the target. Further the wind blow or the change of climatic conditions may force the appellant to extend the working hours or sometimes extend the work schedule beyond the allotted time thereby leading to cost overruns. Therefore wheneve .....

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ompulsions the appellant had to pay cash and procure the material for the contract works. Hence it is most humbly prayed that this respected authority may be pleased to delete the disallowance made u/s.40A(3) of ₹ 13,56,596/- paid in cash towards procurement of material for contract works. WIP CSD (Vishupriva II) for GPL: The appellant purchased an old boat for its business purposes and named it as Vishnupriya II. The appellant had to incur an expenditure of ₹ 1,23,266/- for the repa .....

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t for working conditions, and since only cash payments can be made to buy second hand spare parts, it is most humbly prayed that this respected authority may be pleased to delete the disallowance made u/s.40A(3) of ₹ 1,23,266/-. Machinery Fuel Expenses: The appellant had to carry out dredging work in three or four sites at the same time and the sites were located within 20 to 30 kms. The appellant procures fuel from one common bunk for all the work sites within that area. The appellant had .....

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ing activities are being carried out in the sea coast and port areas which are predominantly occupied by the fishermen community. Wherever the appellant go and intend taking up the business, they have to take into confidence the local fishermen living in groups. Managing the group rivalry is the first and foremost task of the appellant to get into the work place. Thereafter the appellant has to keep on moving with them in a cool and cordial atmosphere so as to ensure the smooth availability of l .....

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r works. Further the nature of expenditure incurred by the appellant is purely driven by cash. The appellant has to settle all the labour issues only by cash. The sub-contractors at village levels are the local headman of the kuppams to whom the appellant has to make the payment and he will distribute the same to the workers. In the instant case the business of the appellant is such that for the broad reasons stated above, it has to depend on the local fisherman and group heads for smooth availa .....

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f the works in time which requires on the spot payments. In order to fulfill the dredging work at odd hours in the inclement weather may force the appellant to work ove night shifts for which the workers need to be paid in cash. All these payments have been made out of business compulsions for obtaining material for contract works amounting to ₹ 13,56,596/-. Similarly, the appellant had to incur ₹ 1,23,266/- for the repair and maintenance of a old boat by name Vishnupriya II thereby .....

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ant placed his reliance on t1ie jurisdictional ITAT decision in the case of Trident movies in ITA No. 184/MDS dated 17.01.2013 wherein it was held no disallowance u/s 40A(3) can be made taking into consideration the business expediency and other relevant factors. In the instant case the assessee and its workers carrying on works relating to dredging and other contract works and payments have to be made to various workers and materials purchased out of business expediency and therefore the disall .....

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h as PACL vs. ACIT (2010) 38 DTR (JP)(Tribunal), KKSK Leather Processors P.Ltd. (2007) 292 ITR 669/(2008) 169 Taxman 251 (MAD), Chowdry & Co. 217 ITR 43 1/84 Taxman 495(ALL) as well as P.Praveen & Co. (2005) 274 ITR 534/ 144 Taxman 210(Guj). 7.3 Keeping in view of the various judicial precedents, the CIT(A) observed that once the genuineness of the payments are not doubted and the payments have been made out of business exigencies no disallowance u/s 40A(3) is required to be made even if .....

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e payments made at ₹ 75,95,349/-. Hence, Ld.CIT(A) allowed this ground of appeal. Aggrieved, the Revenue is in appeal before us. 7.4. We have heard both the parties and perused the material on record. We have gone through the order of Ld.CIT(A) on this issue. We find that though the payments were made in cash in excess of ₹ 20,000/- on account of business expenditure, as the assessee made the payments at the work place for the purpose of purchase of materials and labourers. Further, .....

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ments in respect of above expenditure. Further, the following decisions were relied by the assessee s counsel and also in support of assessee s case. 1. In the case of Anupam Tele Services Vs. ITO reported in (2014) 366 ITR 122(Guj.) wherein held that Section 40A(3) does not eliminate considerations of business expediencies, thus where assessee was compelled to make cash payments, disallowance made by invoking s.40A(3) was not justified. 2. In the case of M/s.Trident Movies Vs. ACIT in ITA No.18 .....

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nder business compulsions and Therefore, by considering all the facts and circumstances of the case and also taking into consideration of the business expediency, we are of the opinion that sec.40A(3) has no application to the facts of the assessee s case. Being so, in our opinion, the deletion of addition made by the CIT(A) in respect of Sec.40A(3) is justified. 8. The next ground is deletion of ₹ 20,95,600/- and ₹ 21,40,000 made towards unexplained cash credits u/s.68 of the Act as .....

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a Vandayar 15,80,000 Shri A.Parthban 21,40,000 Total 58,15,000 During the assessment proceedings, the AO found that as in the individual Account of the partners as well as current account of the partners cash was not debited for taxation, the AO made an addition of Rs. 58,15,000/-. Against this, the assessee carried the appeal before the Ld.CIT(A). 8.3 On appeal, the Ld.CIT(A) observed that Shri.R.Chandrasekar and Shri.A.Parthiban are income tax assessees and they have shown the investment made .....

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concluded that the partners have not shown these amounts in their accounts. 8.4 As far as the contribution from Shri.Alagappa Vandayar is concerned, it is submitted that he has passed away on 10.02.2012 and was 89 years old when he passed away. He was not an assessee and has not filed his return of income for the assessment year 2010-11, but still the sums were contributed by him from out of his income. In the light of the above submissions the Authorised Representative prayed to delete the add .....

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f income filed for the AY 2010-11 i.e., the year under consideration. On verifying the details filed such as copy of the acknowledgement for filing the return of income along with computation of income, capital account and balance sheet of these partners, their investments have been properly reflected in the capital and hence Assessing Officer is directed to delete the additions made in the case of R.Chandrasekar and A.Parthiban. In the case of Shri Alagappa Vandayar aged 89 years who passed awa .....

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e Ld.CIT(A) confirmed additions made by the AO. 8.5 We have heard both the parties and perused the material on record. In the case of Shri R.Chandrasekar, this amount has been received by the assessee for capital contribution. Shri R.Chandrasekar has been assessed to income tax, Nagapattinam, Tamilnadu and he has filed the return of income before the ITO Ward-1(1), (PAN AEKPC 6706 M) and the amount has been disclosed in his financial statement as capital introduced in Safeway Dredging at ₹ .....

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ce was ₹ 9,40,000/- as on 31.03.2009. Being so, it cannot be doubted by the AO u/s.68 of the Act and the deletion of addition is justified. We confirm the order of the CIT(A). 8.7 Regarding sustaining the addition of ₹ 15,80,000/- u/s.68 of the Act in respect of current account balance in the name of Shri Alagappa Vandayar, the assessee is not able to show any proof that Shri Alagappa Vandayar has contributed this amount. In view of the insufficiency of evidence, the addition is to b .....

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